HUD has proposed new mortgage licensing regulations that would affect how investors do owner financing. Unless you are selling your own personal residence you would have to be a licensed mortgage loan originator in order to offer owner financing. I felt this is an unreasonable and unnecessary requirement and submitted a comment saying so (See below).
Now becoming a licensed loan originator is no difficult task; it would be on the scale of effort time and cost to become a real estate agent. However if you just want to sell one or two properties that is a lot of work and expense for no gain to either you or the buyer. This is regulation for the sake of regulation.
This could potentially affect anyone doing rent to own, land contracts, lease options, wraps, owner financing “Lonnie” mobile home deals, and perhaps others I haven’t thought of. I wonder how many small property owners will be breaking the law simply because they won’t know about this new regulation. At a time when we need creative ideas to get the real estate market moving a gain they want to add regulations to impede it from getting back on track.
The regulations were posted on a site that is new to me http://www.regulations.gov. The specific regulations is called: SAFE Mortgage Licensing Act: HUD Responsibilities Under the SAFE Act.
Here is my comment:
I am a small business owner focused on real estate. I, like tens of thousands of other small business people around the country, renovate distressed property. We then sell these beautiful homes to deserving homeowners. In any market, but particularly in this difficult market, the ability to offer owner financing is a benefit to both the seller and the buyer.
The proposed regulations would now require me to become a licensed loan originator in the event that my company decides to offer owner financing on home. I do approximately 5 -15 transactions a year. While large companies will simply chalk it up to the “cost of doing business,” small companies like mine will simply not offer financing – a detriment to buyers – the very people who these regulations are designed to help.
I request that the language under 3400.103 (e) (5) be replaced with: “Any company or individual who only offers or negotiates terms of a residential mortgage loan secured by a dwelling that is owned in it’s entirety by that company or individual. This exemption applies to up to 10 transactions in a given calendar year.”
Reasons for this exemption – why regulation is unnecessary for owner financed deals..
1) Owners are not “brokering” any one else’ money. Why should they comply with “brokers” rules?
2) In most mortgage lending, the loan originator is a middleman whose interests are not aligned with either the borrower or the lender. The loan originator is compensated by the number and size of the deals not the quality. He or she actually has an incentive to make unsound mortgages happen. HOWEVER: When an owner sells a property with owner financing they are loaning their own money. They have a selfish best interest in seeing that the loan is appropriate and can be afforded by the buyer.
3) Technically an owner is not even loaning money. They are simply accepting payments over time. Again the owner’s selfish best interest is to see that the mortgage is affordable to the buyer. This easily meets the requirement set out in the preamble; Supplementary Information: 1. Background “. . . residential loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer.”
4) Consumers are protected because owners must still comply with other regulations regarding residential loans. These regulations apply whether the owner would be required to be licensed or not.
5) Many of our financial problems today stem from loans made by licensed loan originators. Regarding owner financing, you want to solve a problem that doesn’t exist by requiring a license that did nothing to stop the problems we have now.
6) Most importantly, who is being served here? Most small property owners, landlords, renovators, absentee owners, will simply not go to the trouble to get licensed. These are the very owners most likely to do owner financing! By instituting this requirement for owner financing you will be taking a legitimate option out of the marketplace for consumers.
Fortunately there are proposed regulations and not final. The comment period is over but many investors posted comments. I will post an update when and if I hear something further.